Project Outsourcing of Software Development

  • Post last modified:18 March 2023
  • Reading time:18 mins read
  • Post category:Project Management
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What is Project Outsourcing Software Development?

Outsourcing software development is a popular strategy for companies that need to develop software but lack the resources, expertise, or time to do it in-house. Outsourcing software development can provide a range of benefits, including cost savings, access to specialized skills, and increased efficiency. However, outsourcing software development also presents certain challenges that must be carefully managed to ensure a successful outcome.

Let us begin by understanding the term outsourcing. Outsourcing refers to a process wherein an organization or individual hires another organization or individual under contract to produce a certain product or service.

For example, an IT company is in the process of software development, and the project now requires a small module to be developed in the Pro*C language. The IT company does not have software developers who have worked in the Pro*C language before.

For this, the company contacts another company whose core expertise is working in Pro*C. They enter into a contract to develop the required module on mutually agreed terms and conditions, deadline, and remuneration. This work is outsourced.

Now, we will try to understand why outsourcing is so common in the IT industry.

Reasons Behind Project Outsourcing

The following are the reasons behind it:

  • Outsourcing saves costs for the company. For instance, in the above example, if the company was required to develop the module in Pro*C on its own would first have to acquire the software, then train its developers, and then the work would start on the module.

    Beginning of Outsourcing This would be time-consuming as well as would involve cost considerations. By outsourcing, this company has only saved a sufficient amount of time and money for itself.

  • As mentioned several times, the IT industry is dynamic; and hence, one never knows what type of requirement might suddenly surface in a new project. The best possible way is to get the work done through companies that are experienced in dealing with such situations. Since the cost of maintaining resources is high as well, so why not outsource?

  • Outsourcing also lowers software development costs by contracting with countries where labor is cheap. For example, if an A DBA from India is required to provide support to a project team in the US, it will be cheaper for the project owner than seeking the services of an American DBA as the latter will charge more on account of the strict rules of employment enforced in the US.

    For this reason, US IT companies are outsourcing most of their project work to India or other countries where the cost of doing software development work is relatively less.

  • In some countries, such as the US, the government provides tax benefits to companies if they outsource the work to countries where the labor cost is less. For example, during the Recession days, India witnessed a tremendous boom in its IT industry.

Beginning of Outsourcing

The word outsourcing can be viewed as composed of two words – outside resourcing – which when translated means utilizing external resources and their expertise to perform a certain task that the organization is presently unable to do due to several factors, such as resource crunch, lack of experts, to save on the cost to do the work, etc.

The word outsourcing dates back to the year 1981, although the function similar to what is performed in outsourcing was already present in the trades of agriculture and assembly lines earlier. However, this phenomenon saw a great shift of focus with the advent of the IT field.

Coming back to the phenomenon of IT outsourcing, the year 1990 saw the emergence of the outsourcing industry. The first evidence of outsourcing can be found in the reference to global airlines that started outsourcing most of their software development work to India after realizing the benefits of the cheap availability of IT software developers here. Over time, India became a popular choice for outsourcing IT-related services.

With a boom in IT technology and advancements in telecom and Internet services, the IT outsourced projects generated huge profits for the companies; thus, they opened their development centers across several cities to cater to the needs of the project as well as of the client that was providing quality products and services at a very low cost.

Types of Outsourcing in IT project

Various types of outsourcing are common to IT projects:

Maintenance Outsourcing

Maintenance outsourcing: In this type of outsourcing model, the client pays a fixed amount to the organization for a defined timeframe. The outsourced company is required to attend to the problems and issues that may arise from the day–to–day operations of the software under the maintenance contract. For example, fixing defects or tuning the database for query optimization.

In this contract, no change in the requirement of the software is carried out. In case the client wants some change in the functionality of the software, a separate process is required for which the marketer and the technical head get involved to work out the commercials and the timeframe required to incorporate the change.

Fixed Bid Outsourcing

This is an outsourcing model whereby the client pays a fixed amount of money for the task to be done in a definite timeframe. In this type of outsourcing, major requirements are fixed under the statement of work and SRS document, and minor changes in requirements are allowed.

The project management is under the control of the organization to which the work has been outsourced. Development of new software for a government- the owned telecom company is a fixed-bid outsourcing model.

Lab-on-hire Outsourcing

This is an outsourcing model whereby the client utilizes the facilities such as desktops, servers, and software developers for a particular project for a limited period. The project management is with the client and the developers of the outsourced organization work as team members under the project manager of the client.

Service-level Outsourcing

This is an outsourcing model whereby the work related to the maintenance of computer machines, such as desktops, laptops, etc., is done by the outsourced company. Each hardware component that is utilized is covered in a Service-Level Agreement (SLA).

Time and Materials Outsourcing

This is an outsourcing model whereby the terms and conditions related to the payment part are dependent upon time and the type of task that is performed on the software. An example of this type includes any changes to the developed software due to changes in business processes.

Business Process Outsourcing

This is an outsourcing model whereby an organization entirely outsources its business operations to another company by deploying IT resources to manage day-to-day operations. Major foreign insurance companies have outsourced their business processes to India.

Knowledge Process Outsourcing

This is an outsourcing model whereby the people possessing specialized knowledge, such as advocates, doctors, professors, etc., provide their knowledge to resolve the queries of the customers. It is similar to business process outsourcing and, hence, widely uses information technology.

Onsite-offshore Outsourcing Model

Onsite-offshore outsourcing model: This is an outsourcing model whereby a part of the team is working at the client’s site and the rest of the team is working at the development center. Most of the projects follow this type of outsourcing.

Challenges in Outsourcing in IT project

Various challenges and issues are encountered in the outsourcing process. They are:

The Issue of Quality

This is the greatest issue that is observed when IT projects are outsourced. For example, the client wants the product up to the mark of quality he or she has fixed, but the outsourced organization prefers to work in the manner it deems fit. Such an attitude results in the delivered product being of poor quality or project failure in the worst case.

The Issue of Communication Gap

This is another great challenge that is encountered by project managers at outsourced units. For example, during discussions with the client, a software developer puts forth a problem or query to the client, and the client sits silently on the issue for a long time; hence, the project is delayed.

The Issue of Transparency

Usually, outsourced parties prefer to do the work in their way. By this, they end up violating some conditions of the contract. In other extreme cases, they even manipulate the contract to suit their purpose.

Weak Relationship Between the Project Manager and Organisation

As is mostly observed, external project managers, do the work within the scope of the contract or agreed terms and do not perform any work that is not a part of the contract. Worth mentioning is the fact that the IT industry works with variations; hence, problems are bound to escalate.

For example, if an organization outsources the work of database administration during the administration process, it demoralizes the organization’s database administration leading to a slowdown in their performance.

The Project Manager Has Little Knowledge About Organisational Culture and Processes

This is another challenge that organizations must overcome. Project managers usually show little interest in understanding the structure and culture of the outsourcing organization and try to do things in their manner, thus posing problems for the project-owning organization.

Resistance From Within the Organization

In most cases, it has been observed that the people within the organization develop a feeling of animosity and will try to resist the changes brought about by outsourcing the work.

For a Project of Longer Duration, Risk Increases by Outsourcing The Work

This is another challenge that organizations are required to overcome because a risk gets compounded when the duration of the project is long and most of the project work is outsourced. This happens because the outsourced organization tries to gain control over the outsourcing organization’s thinking since they are doing the work, they have no responsibility or accountability to the organization that has outsourced the work. They are accountable to their parent organization only.

Access-sensitive Information

Outsourcing organizations must clearly define the restricted areas and access mechanism so that any confidential information is not leaked out to other organizations.

Managing the Outsourced Work and Communicating With the Outsourced Team Members Are Not Easy

The outsourcing and outsourced parties are legally bound by certain terms and conditions of the project under contract. Hence, they both must be wary that no information about either organization, which is not necessary for the project, is extracted or tried to be stolen by each other, for it may have disastrous effects.

Article Source
  • Kerzner, H. (2001). Project management. New York: John Wiley. Field, M., & Keller, L. (1998). Project management. London: International Thomson Business Press.

  • Heerkens, Gary. (2002) Project management. New York: Mc- Graw-Hill

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